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Bates White expert testifies in Lehman bankruptcy RMBS claims

Last March, Partner Karl Snow and Bates White were retained on behalf of the Trustees of more than 230 RMBS trusts created by Lehman between 2002 and 2008. The Trustees alleged that Lehman and certain of its affiliates breached numerous representations and warranties they made regarding the nature or quality of the loans in the trusts. Pursuant to the securitization agreements governing the trusts, Lehman was required to repurchase loans that materially breached the representations and warranties; consequently, the Trustees asserted claims in the bankruptcy proceeding.

In June 2017, Dr. Snow submitted an affirmative report in which he determined the total net repurchase price of tens of thousands of loans alleged to be breaching the representations and warranties. No opposing experts in the matter contested Dr. Snow’s analysis; instead, they adopted the calculations in their own work. Dr. Snow also produced expert reports analyzing the impact of unsupported assumptions the opposing experts made in their analyses and provided the court with various options on how to treat accrued and unpaid borrower interest—often a component of the purchase price of a breaching loan—in the context of a bankruptcy.

In November 2017, a court-assisted process to estimate the Trustees’ RMBS claims against Lehman began. On January 9 and 10, 2018, Dr. Snow testified in the estimation hearing in the US Bankruptcy Court for the Southern District of New York.

At the end of the process, Judge Shelley C. Chapman decided the allowed claims and resolved this long-standing dispute. In her Order, Judge Chapman noted, “Lehman did not dispute the mathematical accuracy of the calculations [Dr. Snow] performed based on the instructions he was given by the Trustees.” Moreover, she added that “[Dr. Snow] also effectively rebutted the Plan Administrator’s argument that the Trustees’ calculation of Purchase Price ignores interest payments that certificateholders have received on non-liquidated loans [..].”

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